Punjab National Bank v. Assistant Commissioner of State Tax & Ors.

VERSUS

1. Punjab National Bank ) a body corporate constituted ) under the Banking Companies ) (Acquisitions and Transfer ) of Undertakings) Act, 1970 ) having its head office at Plot ) No.4, Sector 10, Dwarka, ) New Delhi 110075 and a branch ) office at Zonal Sastra Centre ) Mumbai, 181-A[1], 18th Floor, ) “E” Wing, Maker Tower, ) Cuffe Parade, )

2. Abhilasha Premises Cooperative ) Society Ltd. ) Jolly Maker No.2, C.S. NO. 627, ) Plot No. 94, Cuffe Parade, ) Mumbai- 400 005 )

3. Assistant Commissioner of ) State Tax (D-815) Nodal ) Division -1, Mazgaon, Mumbai )

4. State of Maharashtra ) Through Government Pleader )...Respondents Ms. Savita Nangare i/by M/s. Law Focus for the Petitioner in WPL/20484/2022 and Respondent No.1 WPL/21538/2022, Mr. Vinod Nagula i/by Ms. Pooja Kharat for the Petitioner in WPL / 21538/2022 and Respondent Nos.12 and 13 in WPL/20484/2022 Mr.V.A. Sonpal, Special Counsel along with Mr. Himanshu Takke, AGP State for the Respondent Nos.[3] and 4 in WPL/21538/2022 and for Respondent No.1 in WP (L) No. 20484/2022 Mr. Himanshu Takke, AGP, State for the Respondent No.1 in WPL/20484/2022 Mr. Manish Doshi a/w. Ms. Isha Thakur, i/by M/s. Vimadalal and Co. for the Respondent No.2 in WPL/21538/2022 CORAM:- R.D. DHANUKA & M.M. SATHAYE, JJ.

RESERVED ON: 2ND MARCH, 2023 PRONOUNCED ON: 24TH MARCH, 2023 JUDGMENT [PER R.D. DHANUKA, J.]

1. Rule. Ms. Savita Nangare waives service on behalf of Respondent No. 1 in WPL 21538 of 2022. Mr. Vinod Nagula waives service for Petitioner in WPL 21538/2022 and Respondent Nos. 12 and 13 in WPL 2048[4] of 2022. Mr. V.A. Sonpal waives service for Respondent Nos. 3 and 4- State in WPL 21538 of 2022. Mr. Himanshu Takke, AGP waives service for Respondent No.1 State in WPL 2048[4] of

2022. Mr. Manish Doshi waives service for Respondent No.2 in WPL 21538/2022. Rule is made returnable forthwith. By consent of the parties, both the Writ Petitions are heard together and are being disposed of by a common order.

2. Petitioner-Punjab National Bank (hereinafter referred to as “Petitioner Bank”) has filed the Writ Petition (L) No. 2048[4] of 2022, inter alia, praying for a writ of Certiorari for quashing and setting aside the attachment order dated 22nd April, 2022 passed by the Assistant Commissioner of State Tax (hereinafter referred to as “Authority”). The Petitioner in Writ Petition (L) No. 21538 of 2022 has prayed for a writ of Certiorari for quashing and setting aside the attachment order dated 22nd April, 2022 passed by the Authority and further seeks an order and direction against Respondent No.2 Society to issue NOC to the Petitioners for effecting the transfer of the Secured Assets in its name, without any requirement of making payment of the dues of the Respondent No.3 and/or NOC of Respondent No.3. Facts and Submissions in Writ Petition (L) 2048[4] of 2022

3. It is the case of the Petitioner Bank that during the period between 2004 and 2009, Respondent Nos. 2 to 11 (hereinafter referred to as “Borrowers”) availed various credit facilities from the Petitioner Bank to an aggregate extent of Rs. 3944.85 lacs, as set out in paragraph 4 of the Writ Petition. Respondent Nos.[4] to 8 have created equitable mortgage of residential Flat No. 182, 18th Floor, along with Garage No.27 at Abhilasha Premises Co-operative Housing Society Ltd., Jolly Maker Apartment No.2, Opposite World Trade Centre, 94, Cuffe Parade, Mumbai- 400 005 (hereinafter referred to as “the Secured Asset”) in favour of the Petitioner Bank. The said mortgage was extended/ revised/renewed to secure credit limits granted to Respondent Nos.[2] to 11.

4. It is the case of the Petitioner Bank that sometime in the year 2010, the said credit facilities granted to the borrowers turned irregular. Accordingly, the loan accounts of the borrowers were classified as non-performing asset (NPA) in accordance with RBI guidelines. The Petitioner Bank recalled the said credit facilities and issued a notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short “the said “SARFAESI Act”) to the borrowers, calling upon them to pay a sum of Rs.21,40,92,734.30 as on 31st August, 2011, together with interest at the contractual rate within the period of 60 days from the date of the said notice.

5. It is the case of the Petitioner Bank that since the borrowers failed and neglected to clear the outstanding dues to the Petitioner Bank, on 26th November, 2011, the Petitioner Bank issued a notice calling upon the borrowers to hand over possession of the secured asset on or before 14th December, 2011 and took symbolic possession of the secured asset on 21st March, 2012. The said possession notice was published in Free Press Journal and Navshakti newspapers.

6. In the meanwhile, on 30th March, 2012, the Petitioner Bank registered mortgage of Secured Asset with Central Registry of Securitization Asset Reconstruction and Security Interest of India (hereinafter referred to as “the said CERSAI”). The said CERSAI report has been downloaded on 18th October, 2022 by the Petitioner Bank which shows that the Security Interest of the Petitioner Bank was registered with CERSAI on 30th March, 2012.

7. On 23rd January, 2013, the Chief Metropolitan Magistrate

(CMM) Mumbai passed an order under Section 14 of the SARFAESI Act to take physical possession of the secured asset. On 19th September, 2019, the physical possession of the secured asset was taken by the Petitioner Bank. The Petitioner Bank thereafter published various eauction notices. The last e-auction notice was published on 19th February, 2022 in Free Press Journal for sale of the secured asset at reserve price of Rs.7.54 crore. The e-auction was conducted on 10th March, 2022.

8. The Respondent Nos.12 and 13 (hereinafter referred as “auction purchasers”) participated in the said e-auction and submitted a bid of Rs.7.55 crore along with 10% Earnest Money Deposit of Rs. 75 lacs. On 10th March, 2022, the Petitioner Bank confirmed the auction purchasers as highest bidder. The auction purchasers paid 25% EMD of Rs.1,88,75,000/- They requested for grant of extension of time until 30th April, 2022 for payment of balance 75% of the bid amount. The Petitioner Bank granted extension vide letter dated 25th March, 2022.

9. It is the case of the Petitioner Bank that as on 15th June,2022, the total outstanding dues recoverable by the Petitioner Bank was Rs.104,19,49,933.76 due and payable by the borrowers and further interest at the contractual rate. It is the case of the Petitioner Bank that in the meantime, the Respondent No.1 Authority passed the impugned order on 22nd April, 2022 attaching the said Secured Asset. It is the case of the Petitioner Bank that since at the time of filing of this Writ Petition, the Petitioner Bank could not file the said CERSAI report and under bonafide belief, created a new registration entry in haste.

10. On 4th May, 2022, the society intimated the Petitioner Bank and the auction purchasers that the society would issue NOC for transfer of secured asset subject to clearance of the society dues and sale tax dues. The Authority registered its encumbrance with the concerned sub-registrar of the said secured asset. As a result whereof, the auction purchasers are unable to procure no objection certificate from the society. The Petitioner Bank, therefore, filed this petition on 28th June, 2022.

11. On 4th November, 2022, the Petitioner has filed an Additional Affidavit, placing on record the copy of CERSAI Report downloaded from the CERSAI website showing that the security interest of the Petitioner Bank was registered under the CERSAI on 30th March, 2012. This Writ Petition is opposed by the Authority by filing Affidavit in Reply on 6th January, 2023. Facts and Submissions in Writ Petition (L) 21538 of 2022.

12. The Petitioner Nos. 1 and 2 (for short “the auction purchasers”) came across a paper publication made by the Petitioner Bank on 19th February, 2022 in Free Press Journal newspaper for sale of the Secured Asset at Reserve Price of Rs.7.54 crore. They participated in the said e-auction and submitted a bid of Rs.7.55 crore and deposited Rs.75.[5] lacs towards 10% Earnest Money Deposit (EMD). Pursuant thereto, on the same day i.e. 10th March, 2022, the Petitioner Bank confirmed the auction purchasers as highest bidder.

13. On 11th March, 2022, the auction purchasers paid Rs.1,88,75,000/- towards 25% EMD of bid amount. As per the said email of confirmation dated 10th March, 2022, the auction purchasers were required pay 100% bid amount to the Petitioner Bank towards purchase of the Secured Asset by 15th April, 2022. The auction purchasers vide their letter dated 21st March, 2022 requested Petitioner Bank to grant extension of time until 30th April, 2022 for payment of balance 75% of the bid amount.

14. It is the case of the auction purchasers that on 11th March, 2022, the flat purchasers visited the office of the Respondent No.2 (for short “the society”) for understanding the transfer formalities and were informed that there there were pending dues on the Secured Asset towards society maintenance and electricity dues. On 25th March, 2022, the auction purchasers approached the Petitioner Bank about the outstanding dues of the society and the sales tax dues as informed to them by the society. The Petitioner Bank accordingly addressed a letter dated 25th March, 2022 to the Society informing about the sale of the Secured Asset to the auction purchasers and also informed that under Section 26E of the SARFAESI Act, the Petitioner Bank requested to issue No Objection Letter to the auction purchasers.

15. On 28th March, 2022, the society informed the Petitioner Bank about the pending society dues of Rs.23,21,452/- and also informed about the claim of Sale Tax Department of Rs.4,24,89,312/-. April, 2022, the Petitioner Bank addressed a letter to the Society, reiterating that the Petitioner Bank has priority over the said Secured Asset being the Secured Creditor under Section 26E of the SARFAESI Act and requested the Society to issue No Objection Letter to the auction purchasers for registration of the said Secured Asset. The auction purchasers have shown their willingness to pay the society dues, so as to get Secured Asset registered in favour of the flat purchasers.

16. On 21st April, 2022, the auction purchasers addressed a letter to the Petitioner Bank that the title of the Secured Asset being not clear, the same cannot be transferred to the auction purchasers nor can the auction purchasers avail loan on the Secured Asset and therefore requested the Petitioner Bank to arrange for a clear title of the Secured Asset, failing which the auction purchasers requested the Petitioner Bank to refund the amount deposited by them. On 25th April, 2022, the auction purchasers addressed a letter to the Petitioner Bank that the society refused to issue No Objection Letter to them stating that the Sales Tax Department had prohibited the Society from effective transfer of the Secured Asset and requested the Petitioner Bank to extend time for payment of the balance bid amount till end of May, 2022 or such till time that the Sales Tax matter is resolved.

17. On 4th May, 2022, the Petitioner Bank informed the auction purchasers that as they have failed to deposit the balance bid amount on due date i.e. on 30 April, 2022, the competent authority of the Petitioner Bank had advised to forfeit the amount of 25% Earnest Money Deposit of Rs.1,88,75,000/- and hence the said amount paid by the auction purchasers stood forfeited.

18. On 13th May, 2022, the auction purchasers raised objections to the unilateral action of forfeiture of the EMD by the Petitioner Bank and informed the Petitioner Bank that they were willing to make payment of the balance 75% of the bid amount and also reserves its right to take possession of the said Secured Asset, provided that the issue of the Sales Tax dues was resolved and clear title of the said Secured Asset is passed onto the auction purchasers.

19. The auction purchasers thereafter preferred a Securitization Application under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal I, Mumbai, inter alia praying that the Petitioner Bank be restrained from forfeiting the 25% EMD amount deposited by the flat purchasers. The said application is pending before the DRT-I. On 6th July, 2022, the auction purchasers preferred this Writ Petition for various reliefs. In this petition filed by the Auction Purchasers, the Petitioner Bank and the said Society filed affidavits. Submissions on behalf of the Petitioner Bank

20. Ms. Savita Nangare, learned counsel for the Petitioner Bank invited our attention to various documents annexed to the writ petition filed by her client, Affidavit in Reply filed by the Respondent No.1 Authority and also the Additional Affidavit filed by the Petitioner Bank. She submitted that admittedly, the Secured Asset was mortgaged in favour of the Petitioner Bank by the borrowers, who had availed various credit facilities from the Petitioner Bank to an aggregate extent of Rs. 3944.85 lacs during the period between 2004 and 2009 and became defaulters and the Petitioner Bank had already taken symbolic possession of the Secured Asset on 21st

21. In pursuance to the action initiated by the Petitioner Bank under Section 14 of the SARFAESI Act, the Chief Metropolitan Magistrate passed an order for taking physical possession of the Secured Asset in favour of the Petitioner Bank. The Petitioner Bank has taken physical possession on 19th September,2019. It is submitted by the learned counsel for the Petitioner Bank that the security asset was subsequently sold by the e-auction on 10th March, 2022 in which the auction purchasers was found to be successful bidder and also paid 25% Earnest Money Deposit of Rs.1,88,75,000/- to the Petitioner Bank.

22. It is submitted by the learned counsel for the Petitioner Bank that the Petitioner Bank has already registered the mortgage of the Secured Asset with Central Registry of Securitization Asset Reconstruction and Security Interest of India (CERSAI) on 30th March,

2012. She relied upon a copy of the CERSAI Report downloaded from the CERSAI website on 30th March, 2022 showing that the Petitioner Bank had complete the procedure of Security Interest with CERSAI on 30th March, 2012. She submitted that since the Petitioner Bank could not find the CERSAI Report earlier and under a bonafide belief the Petitioner Bank created a new registration in haste, which is of no consequence in view of Petitioner Bank completing the procedure for registering the security interest with CERSAI as far as back on 30th

23. It is submitted by the learned counsel for the Petitioner Bank that Section 26A was introduced in the SARFAESI Act, by 2016 Amending Act which provided for for rectification by the Central Government in the matters of registration, modification and satisfaction, etc. and also, registration by secured creditor or other creditors. She submitted that Section 26A of the said provision also declares that a secured creditor who has registered the security interest or other creditor who has registered the attachment order in its favour, shall have priority of claims over subsequent security interest created over the property in question, and any transfer by way of sale, lease, assignment or license of such property or attachment order subsequent to such registration. The Petitioner Bank accordingly registered the mortgate of the said secured asset with the CERSAI.

24. Since the borrowers had committed default in repayment of the loan, the loan accounts of the borrowers were declared as Non- Performing Asset. The Petitioner Bank has already taken physical possession of the secured asset. The auction sale was successful and the auction purchasers were declared as successful bidder in the said e-auction conducted by the Petitioner Bank. She invited our attention to the impugned order dated 22nd April, 2022 passed by the Authority and submitted that the impugned order prohibiting transfer of secured asset, was passed on the premise that there were outstanding of Rs.4,62,27,317/- against M/s.Tuff Enterprises. She submitted that the said Tuff Enterprises was not a borrower of the Petitioner Bank. Learned counsel invited our attention to the impugned attachment order date 22nd April, 2022 issued by the Authority.

25. Learned counsel for the Petitioner Bank placed reliance on various paragraphs of the judgment delivered by the Full Bench of this Court on 30th August, 2022 in case of Jalgaon Janta Sahakari Bank Ltd. and Anr. Vs. Joint Commissioner of Sales Tax Nodal 9, Mumbai and Anr. in Writ Petition No. 2935 of 2018 and batch of Petitions. He submitted that the Petitioner Bank came to know about the alleged encumbrance on the secured asset only after the sale was conducted in respect of the secured asset in favour of the auction purchasers. The attachment of the secured asset took place only after the auction of the secured asset. The auction purchasers were informed about such charge alleged to have been created by the Respondent No.1 Authority upon the secured asset from the society much later. She submitted that in view of the impugned order passed by the Respondent No.1 Authority, the Petitioner Bank could not recover the balance 75% amount of the sale proceeds and could not confirm the sale in favour of the auction purchasers.

26. Learned counsel for the Petitioner Bank invited our attention to the correspondence exchanged between the Petitioner Bank and the society and also the auction purchasers and the society. She submitted that when the Petitioner Bank had sent an email on 11th August, 2020 informing about the possession taken by the Petitioner Bank in respect of the secured asset, Society did not inform about the alleged dues of the owners of the secured asset who are members of the society. The Petitioner Bank had accordingly called the society to inform the society’s charges. Even at that stage, the society did not inform the Petitioner Bank about the claim, if any, of the Respondent No.1 Authority over the said secured asset. She submitted that though the auction purchasers had visited the premises of the society and also secured asset, the society did not inform the auction purchasers about the dues, if any, of the State Government recoverable from the borrowers.

27. It is submitted that when the said secured asset was put to auction by the Petitioner Bank, for realizing their dues, no objection was raised by the sales tax department. No due notice was earlier issued by the sales tax department upon the Petitioner Bank in respect of the secured asset. Learned counsel for the Petitioner Bank invited our attention to the stand taken by the Respondent No.1 Authority in the Affidavit in Reply and submitted that the Respondent No.1 Authority has contended for the first time about the dues of taxes under MVAT Act. Liability under Section 37 of this Act to be the first charge; notwithstanding anything contained in any contract to the contrary, but subject to any provision regarding creation of first charge in any Central Act for the time in force.

28. It is submitted that this stand taken by the Respondent No.1 Authority is contrary to the principles laid down by the Full Bench of this Court in case of Jalgaon Janta Sahakari Bank Ltd. and Anr. (supra). It is submitted that the Respondent No.1 Authority had issued a notice under Section 33(1) of the Maharashtra Value Added Tax Act, 2002 to the IDBI Bank in respect of Flat No.181. No such notice under Section 33(1) of the MVAT Act was issued to the Petitioner Bank in respect of the flat No. 182.

29. Learned counsel invited our attention to the notice dated 9th July, 2015 issued by the Respondent No.1 Authority upon the society in respect of Flat No.181 to not to transfer the said flat without No Objection from the Respondent No.1 Authority. Admittedly, no such notice was issued by the Respondent No.1 Authority upon the society in respect of Flat No.182 i.e. the secured asset. It is submitted that even the said order of attachment dated 16th December, 2017 was passed in respect of Flat No.181 and not passed in respect of Flat No.182.

30. It is submitted that the Petitioner Bank had already informed the society on 8th February, 2020 about the Mortgage of the said secured asset with the Petitioner Bank and also about the physical possession thereof with the Petitioner Bank. Petitioner Bank informed that it was in a process of sale of the said secured asset under the provisions of the SARFAESI Act and requested the society to inform the pending society’s dues as on the date of the said letter and the charges of transferring the property. She submitted that even at that stage the society did not inform about the alleged encumbrance upon the secured asset.

31. Learned counsel for the Petitioner Bank invited our attention to the averments made by the society in the Affidavit in Reply filed in Writ Petition (L) No. 21538 of 2022, filed by the auction purchasers, stating that the as per the records of the Society, the said Flat No. 182 and Flat No.181 are joint and have a common entrance. She submitted that even in the said Affidavit in Reply filed by the Society, it is contended that prior to the impugned order dated 22nd April, 2022, the Respondent No.1 Authority had not raised any claims or registered any charge in respect of the said Flat No.182, which is the subject matter of the present Petition filed by the auction purchasers and also the Petitioner Bank. However, out of abundant caution and in view of the fact that the said Mr. Shankarlal Jain was a common coowner of the said Flat No.181 and the Flat No.182 and the said Flat No.181 and the said Flat No.182 are joint, having a common entrance and joint use even prior to the passing of the impugned order, the Society had informed the Authority about the claims of the Sales Tax Department.

32. It is submitted by the learned counsel for the Petitioner Bank that Section 26E was inserted into SARFAESI Act in September, 2016, however, it came into effect on 24th January, 2020. It is submitted that under Section 26E of the SARFAESI Act, a charge was required to be registered. The charge was registered by the Bank with CERSAI prior to January, 2020. The Respondent No.1 Authority did not register their charge under the said provision prior to the date of registration of the charge of the Bank in respect of the secured asset. The attachment of the said secured asset leveled by the Respondent No.1 Authority after sale of the secured asset by the Petitioner Bank is thus ex-facie, illegal and without authority of law.

33. The attachment order has to be passed in accordance with the provisions of the MLR Code in accordance with the procedure prescribed, which was not followed by the Respondent No.1 Authority. Learned counsel submitted that consequent upon the registration of the security interest by the Bank in the year 2012 itself, the right of the Bank as secured creditor to be paid in priority crystalized on 24th January, 2020, the day Chapter IV-A of the SARFAESI Act was brought into force.

34. Learned counsel placed reliance on paragraph 256 of the judgment delivered by the Full Bench of this Court in case of Jalgaon Janta Sahakari Bank Ltd. and Anr. (supra.) and submitted that this Court has considered the identical facts where the State Tax Authorities had not ordered the attachment of the secured asset in the manner known to law and followed it up with a proclamation, prior to rights of the Bank as secured creditor, who had registered the security interest with CERSAI, were crystallized.

35. Learned counsel for the Petitioner Bank placed reliance on the judgment in case of Jalgaon Janta Sahakari Bank Ltd. and Anr. (supra), and more particularly paragraph 299 and 300 of the said judgment and submitted that the Respondent No.1 Authority did not claim that they had registered the charge/attachment order with the CERSAI to adhere to the mandate contained in Section 26B(4) of the SARFAESI Act. Non-registration of the claim and/or order of attachment entails the consequences envisaged by sub-section (2) of Section 26C of the SARFAESI Act. She submitted that the Petitioner Bank thus cannot be deprived of the right of priority under Section 26E of the SARFAESI Act. Since the Petitioner Bank has already registered the security interest with the CERSAI and since the Respondent No.1 Authority had failed to register its claim and/or order of attachment, the claim of the Respondent No.1 Authority becomes subservient to the right of the Petitioner Bank as secured creditor.

36. Learned counsel for the Petitioner Bank relied upon paragraphs 197,198 and 199 of the said judgment delivered by the Full Bench and submitted that since the said secured asset of the defaulters have not been attached in accordance with law, prior Chapter IV-A of the SARFAESI Act or Section 31B of the Recovery of Debts Due to Bank and Financial Institution Act, 1993 ( for short “RDDB Act”) would not get attracted. Learned counsel invited our attention to paragraphs 267 to 271 of the said judgment delivered by the Full Bench and submitted that since the impugned order of attachment was passed, post section 26E of the SARFAESI Act having been brought into force, the right of the Petitioner Bank to have priority in payment of the secured debt, over all other debts, revenue and taxes, would crystalize. Subsequent action of attachment of the secured asset purportedly in exercise of the right under Section 37 of the MVAT Act would not dislodge the superior claim of the secured creditor.

37. It is submitted by the learned counsel for the Petitioner Bank that the rights of the auction purchasers are based on the rights of the Petitioner Bank. She submitted that the impugned order passed by the Respondent No.1 Authority having been passed contrary to the principles laid down by the Full Bench in case of Jalgaon Janta Sahakari Bank Ltd. and Anr. (supra.), thus deserves to be quashed and set aside. Submissions of the Auction Purchasers and the Society in Writ Petition (L) No. 21538 of 2022 filed by the Auction Purchasers.

38. Learned counsel for the auction purchasers adopted the submissions made by the learned counsel for the Petitioner Bank and made additional submissions. He submitted that the charge of the Respondent No.1 Authority, if any, was not registered at any point of time with CERSAI. He relied upon paragraphs 177 and 185 to 199 of the judgment delivered by the Full Bench in case of Jalgaon Janta Sahakari Bank Ltd. and Anr. (supra) and submitted that when the auction purchasers had visited the office of the society, as also secured asset i.e. Flat No.182, the Society did not inform them about the so called claim/charge of the Respondent No.1 Authority against the borrowers or any lien or attachment in respect thereof on the date of such period.

39. Learned counsel relied upon the averments made by the Society in its Affidavit dated 28th December, 2022 and also the Additional Affidavit filed by the auction purchasers. He submitted that the auction purchasers had visited the secured asset on four occasions. He relied upon the Affidavit filed by Rahul Kapoor, residing in the same building, in which the said secured asset is situated. He averred in the said Affidavit that when he had visited the secured asset, along with the auction purchasers, he could not see any notice of the State Tax Department or any other Government from time to time over the secured asset, intimating lien/charge on the secured asset. The society never informed the auction purchasers about the charge or dues of the Sales Tax or any Government department on the secured asset.

40. It is submitted by the learned counsel that the auction purchasers relied upon the Search Report submitted by Mr. Rakesh P. Mali stating that he had taken search in the office of the Sub-Registrar in respect of the Secured Asset from 2008 to 2022 and found NIL encumbrance. He also relied upon the Search Report submitted by Mr. S.G. Angchekar, Search Clerk from 2003 to 2022 and found that during the said period from 2003 to 2022, there was no encumbrance on record and that from 2003 to 2012 the records were partly torn.

41. Learned Counsel relied upon the correspondence exchanged between the auction purchasers and the society and also with the Petitioner Bank. He submitted that the auction purchasers never informed about the alleged claim of the Respondent No.1 Authority in respect of the secured asset and only after the auction took place, the auction purchasers had taken steps required for due diligence before purchasing the secured asset.

42. Learned counsel for the society, on the other hand, submitted that the said Flat Nos. 181 and 182 in the building of the Society are jointly owned by Mr. Shankarlal Jain. He invited our attention to the correspondence exchanged between the society and auction purchasers, with the Petitioner Bank and also with the Respondent No.1 Authority. He submitted that prior to 22nd April, 2022, the Respondent No.1 Authority had not raised any claim or charge in respect of the secured asset i.e. Flat No. 182. However, out of abundant caution and in view of the fact that Mr. Shankarlal Jain was common co-owner of the said Flat No. 181 and the said Flat No.182 and having a common entrance and joint use even prior to the passing of the impugned order, the Society had informed the Petitioner Bank about the claims of the Sales Tax Department.

43. It is submitted that the Respondent No.1 Authority never raised any dues in respect of Flat No. 182 i.e. secured asset. He submitted that the Society is ready and willing to issue the requisite No Objection Certificate for transfer of the said Flat No. 182 in favour of the auction purchasers subject to the satisfaction of its dues in respect of the said Flat No. 182 and the raising/discharge of the impugned order dated 22nd April, 2022 and issuance of NOC by the Respondent No.1 Authority. He placed reliance on various paragraphs of the judgment delivered by the Full Bench of this Court.

44. It is submitted that there is no charge created or lien in respect of the said Flat No.182 by the Respondent No.1 Authority in records of the society. He submitted that the Respondent No.1 Authority had levied attachment on the secured asset only after auction of the secured asset by the Petitioner Bank in respect of which the Auction Purchasers were found as the successful bidders. The attachment has to be levied in accordance with the provisions of the Maharashtra Land Revenue Code which in this case are not complied by the Respondent No.1 Authority before levying the impugned attachment of the secured asset. It is submitted that right of the auction purchasers is based on the rights of the Petitioner Bank and thus knowledge of the auction purchasers about the sales tax dues, if any, is of no significance.

45. Mr. Sonpal learned Special Counsel for the Respondent No.1 Authority, invited our attention to the prayers in both the Writ Petitions. He submitted that auction of the writ property was admittedly held on 10 March, 2022 whereas Security Interest was registered by Petitioner Bank with CERSAI on 23 June, 2022. He submitted that on the date of effecting Sale of the writ property, the security interest of the Petitioner Bank was not registered with CERSAI. Thus, Petitioner Bank cannot claim any priority of its claim over the sale proceeds of the said property above the Respondent No.1 Authority.

46. Learned Special Counsel invited our attention to the Section 37 of the Maharashtra Value Added Tax Act and submitted that Respondent No.1 Authority has first charge on the property of the dealer/borrower i.e. Respondent No. 4, which is crystalized on the 30th day of the dealer having committed default. He submitted that even according to the Petitioner Bank, account of Respondent Nos. 2 to 11 are classified as NPA. The loan against Respondent No.4 dealer, there was a housing loan of Rs.2,07,00,000/- and the additional loan of Rs.20,00,000/-. The account of the borrowers were declared as NPA in the year 2010. The Petitioner Bank, however, continued to advance loan against Flat No. 182 even thereafter which speaks volumes for its conduct.

47. It is submitted that the cause of action have thus had arisen in favour of the Petitioner-Bank to file appropriate proceedings for recovery of dues from the Respondent Nos.[2] to 11 in the year 2010. Notice invoking Section 13(2) of the Securitization Act, was issued on 6 September, 2011. On 26 November, 2011 possession Notice was given. The sale was effected further only on 10 March, 2022 when the Securities made by the Petitioner Bank was barred by limitation against Respondent Nos.[2] to 11.

48. Learned Special Counsel for the Respondent No.1 Authority submits that the impugned order passed by Respondent No.1 Authority is in accordance with the jurisdiction vested in him under Section 32(5) read with Section 34 and 37 of the MVAT Act. The challenge to the said order by the Petitioner Bank cannot be sustained as the said order is passed in accordance with law, especially when there is no challenge to the jurisdiction for violation of principles of natural justice, indication for violation of fundamental or statutory rights.

49. It is submitted that there are dues pending in respect of the dealer i.e. Shankarlal Jain, Proprietor of Tuff Enterprises and as per procedure provided under MVAT Act, the Respondent No.1 Authority has taken action. The question of property claimed by the Petitioner Bank under attachment of assets of dealer did not arise. There is no cause of action in favour of the Petitioner Bank in as much as Respondent No.1 Authority has not acted, without prejudice to their rights to take the action, claiming priority in respect of sale proceeds of the writ flat No.182 or claimed sale proceed of the Petitioner Bank.

50. It is submitted by the learned special counsel that the issue whether there is mortgage or not or valid mortgage has to be adjudicated in trial in the suit to be filed against all the borrowers especially, when there is no defence taken by the borrowers at any stage. The auction purchasers has failed to pay balance consideration of the Sale to the Petitioner Bank. The Petitioner Bank has acted in terms of Rule 9 of the Securitization (Enforcement of Security Interest) Rules and forfeited the Earnest Money Deposit made by auction purchasers. He submitted that Petitioner Bank has forfeited Earnest Money Deposit, therefore, the Petitioner Bank does not have any power to revoke forfeiture and only option that remains with the Petitioner Bank is to re-advertise sale and enforce Security Interest.

51. It is submitted by the learned Special Counsel that under Rule-9(4)(5) of the Security (Enforcement of Security Interest) 2002, if the auction purchasers committed default in payment in respect of purchase price, even if, any extension can be granted by Petitioner Bank for payment of balance amount, such extension would not be beyond the period of three months. He submitted in this case auction purchasers have not paid balance amount within a period of three months from the date of auction, and the Petitioner-Bank having forfeited Earnest Money Deposit, the entire sale transaction stands cancelled. The question of Petitioner Bank claiming any priority in respect of the sale proceeds of the writ property does not arise.

52. Learned Special counsel for the Respondent No.1 Authority invited our attention to the advertisement issued by the Petitioner Bank and submitted that it was made clear in the said advertisement that the sale was on “as is where is, as is what is and whatever there is basis.” It is submitted that, it was also made clear in the said advertisement that the statutory liability has to be paid by the auction purchasers and regarding encumbrances known to secured creditors, it was stated in the last column of the table that “Not known”.

53. It is submitted that in view of the fact that sale was on “as is where is basis or as is what is basis, whatever there is basis”, the auction purchasers cannot dispute the liability in respect of the writ property of which the Respondent No.1 Authority is charged in respect of the tax dues not paid by the Respondent No. 4 dealer. The sale of Flat No.182 was of Commercial entities viz. Chandri and Allied Products Private Limited, Bokadia Spinning Mills Private Limited and its group. He submitted that the charge attached to the said property Flat No. 182 continues to be of Section 100 of Transfer of Property Act.

54. It is submitted by the learned counsel that as per Securitization (Enforcement) Rules, 2002 under Rules 8 (6) (a) and (f), 9(7), 9(9) and 9(10) it is duty of the Petitioner Bank to disclose the details of encumbrances known to the creditors and fact of knowledge is governed by Section 3 and 100 of the Transfer of Property Act, which can be ascertained in Trial in suit and the auction purchasers have remedy to claim compensation by filing suit against Petitioner Bank. No relief, thus can be granted in favour of either the Petitioner Bank or the auction purchasers.

55. It is submitted that though the Petitioner-Bank is admittedly aware of the encumbrance of the society dues intimated to it, did not even disclose the arrears in the Advertisement, speaks volumes of malafide intention of the Petitioner Bank. He submitted that since the Petitioner Bank in the Advertisement for auction-sale has claimed default in payment of advance to business entities, therefore the Auction purchasers were duty bound to ascertain tax dues which they have failed to and therefore, constructive notice is with the auction purchasers and therefore, they can not avoid discharge of such Tax liability.

56. It is submitted by the learned special counsel for the Respondent No.1 Authority that Section 26E of the Securitization Act only provides for the distribution of the sale proceeds in priority to secured creditors and does not adversely affect the encumbrances capable of being enforced against the buyers of the property. He submitted that the Auction Purchaser never made any inquiry before bidding for sale with the society or tax authorities to ascertain the dues of the Respondent No.1 Authority.

57. By letter dated 17th April, 2015, the Respondent No.1 Authority had already intimated to the Society to keep lien of the Government on the property of the dealer. The Society was well aware of the dues of the MVAT Department and either party to sale in auction could have ascertained upon enquiry with the society under due diligence encumbrances on the said flat. The learned special counsel for the Respondent No.1 Authority placed reliance on the judgment of Nagpur Bench of this Court delivered on 18th February, 2021 in Writ Petition No. 7971 of 2019 in case of [Medineutrina Pvt. Ltd. (Company) Vs. District Industries Centre (D.I.C.) and Ors.] and in particular paragraph Nos. 28 to 30, 32, 36 to 41 and the status report of the Special Leave Petition No. 10919/2021 registered on 19th July, 2021 dismissing the Special Leave Petition filed by the Medineutrina Pvt. Ltd. (Company) (Petitioner) before the Supreme Court.

58. Learned special counsel for the Respondent No.1 Authority also placed reliance on order passed by the Supreme Court on 18th November, 2021 in Civil Appeal No. 6350/2021 in [Kotak Mahindra Bank Ltd. Vs. District Industries Centre (D.I.C.) & Ors.] and submitted that there is first charge of the Respondent No.1 on the writ property in respect of the statutory dues.

59. Ms. Nangare, learned counsel for the Petitioner Bank in Writ Petition (L) No. 20484/2022 in her rejoinder argument invited our attention to the additional affidavit filed by the Petitioner on 4th November, 2022 and submitted that only after sale of the secured asset, the Petitioner received the impugned order dated 22nd April, 2022 passed by Respondent No.1 Authority attaching the said secured asset. The Petitioner Bank, thereafter, had appointed Law Focus, Advocates for filing this Writ Petition.

60. It is submitted that when the Petitioner Bank was unable to locate the CERSAI Report dated 30th March, 2012 on the CERSAI Website, but found a CERSAI Report for the same secured asset with different borrower name i.e. ‘Shantilal Jain’, the Petitioner Bank believed that the Petitioner Bank had made a mistake while registration of Security Interest on CERSAI portal by mentioning borrower name as ‘Shantilal Jain’ instead of ‘Shankarlal Jain’. Therefore, under this bonafide belief, the Petitioner Bank created a new registration entry on CERSAI portal on 23rd June, 2022 i.e. just before filing of the Writ Petition and filed the report of new registration entry annexed at Exhibit-D to the Petition showing proof of registration of Security Asset of the CERSAI of the Petitioner Bank on the said Secured Asset.

61. Learned Counsel invited our attention to CERSAI Search Report annexed at Exhibit ‘A’ to the Additional Affidavit and submitted that the said report would clearly indicate that SI Creation date in filing was 26th March, 2004 and SI registration date in CERSAI Portal was 30th March, 2012 at 18:04.

62. Insofar as submission made by the learned special counsel for the Respondent No.1 Authority that the Petitioner Bank had forfeited the earnest money deposited by the auction purchasers and others and auction sale in favour of the flat purchasers by the Petitioner Bank stood cancelled is concerned, the Petitioner Bank through their Advocate’s letter dated 29th June, 2022 addressed to the auction purchaser had clearly informed that, the Petitioner Bank had filed Writ Petition (L) NO. 20484/2022 before this Court for lifting the attachment of the Respondent No.1 Authority and to seek necesary direction against the Respondent No.1 Authority to confirm the sale in favour of the Petitioner subject to receipt of balance 75% bid amount immediately upon passing of such direction.

63. The Petitioner Bank advised the Auction Purchasers to make necessary arrangement and keep the balance 75% bid amount ready to pay the Petitioner Bank immediately upon passing of directions of this Court in this Petition. She submitted that it is thus clear that the Petitioner Bank agreed to accept the balance 75% of the consideration amount from the auction purchaser on the attachment levied by the Respondent No.1 Authority on writ property is lifted by this Court.

64. It is submitted by the learned counsel that the mortgage of the writ property in favour of the Petitioner Bank by the borrowers and/or guarantors was much prior to the attachment levied by the Respondent No.1 Authority on the writ property. She invited our attention to to the prayer clause (a) of the Writ Petition filed by the Petitioner Bank and submitted that by invoking of Section 13(2) of the Securitization Act, the Petitioner Bank being a secured creditor is allowed to sale the mortgage asset being a secured asset. She submitted that the notice under Section 13(2) of the Securitization Act was issued by the Petitioner Bank upon the borrowers as far as in

2011. The process for recovery of the dues of the Petitioner Bank from the borrower and guarantors under the provisions of the SARFAESI Act was started much earlier.

65. It is submitted that the inquiry under Rule 9 (4) of the Securitization (Enforcement) Rules 2022 cannot be within the scope of inquiry in the writ petition filed by the Petitioner Bank, inter alia, praying for certain attachment order levied by Respondent No.1 Authority. She invited our attention to Section 17 of the Securitization Act and submitted that Respondent No.1 Authority could have approached the Debt Recovery Tribunal for stopping the process of auction initiated by the Petitioner Bank and for a declaration that Respondent No.1 Authority had first charge over the property of the dealer. The Respondent No.1 Authority, however, did not file any such proceeding before DRT by invoking Section 17 of the Securitization Act.

66. Learned counsel for the Petitioner Bank relied upon paragraph 200 and 201 of the judgment of the Full Bench in case of Jalgaon Janta Sahakari Bank Ltd. & Anr. (supra.) and submitted that the rights of the secured creditors are not affected even if there is any scheme in respect of the tax dues of the dealer payable to the Sales Tax Department. She submitted that the Petitioner Bank is not required to sell the mortgage property which is a secured asset in favour of the Petitioner Bank with a view to claim priority from the said property.

67. It is submitted by the learned counsel for the Petitioner Bank that 25% consideration amount was already deposited by the auction purchaser under Rule 9(3) of the said Rules. She submitted that the Petitioner Bank has right to withdraw or to press the order of forfeiting the earnest money deposit. The Petitioner Bank did not press the forfeiture order and approached for setting aside the attachment order and agreed to accept the balance 75% amount from the auction purchasers.

68. Learned counsel for the Petitioner Bank invited our attention to notice dated 22nd April, 2022 addressed by Respondent No.1 Authority to the Petitioner Bank informing that there were outstandng Sales Tax dues to the tune of Rs.4,62,27,317/- againt M/s. Tuff Enterprises and for recovery of the said amount, the Sales Tax Department initiated recovery proceeding under Section 33 and 34 of the Maharashtra Value Added Tax Act, 2002. In the said Departmental Order, Respondent No.1 Authority invoked Section 37 and 38 of the Maharashtra Value Added Tax,2002 and requested the Petitioner Bank to prohibit any kind of transfer of property by way of sale, mortage, gift, exchange or parts any possession of any of the assets of the dealer and threatened to take appropriate action under the provisions of MVAT Act, 2002 invoking the provisions under the Indian Penal Code and Code of Criminal Procedure against the Petitioner Bank.

69. It is submitted that in view of the said attachment order, levied on 22nd April, 2022 i.e. within the period of 3 months from the date of which the auction purchasers are liable to pay the balance 75% consideration amount i.e. on or before 10th June, 2022, the said property was already attached and thus, neither the Petitioner Bank could recover the consideration amount nor the auction purchasers could deposit the said balance consideration with the Petitioner Bank. She submitted that Respondent No.1 Authority never raised any demand notice on the flat bearing No. 182.

70. Learned counsel for the Petitioner Bank relied upon the judgment of the Supreme Court in case of General Manager, Sri Siddeshwara Cooperative Bank Ltd. And Anr. Vs. Ikbal and Ors. [(2013) 10 Supreme Court Cases 83] and more particularly paragraph 19 and submitted that Rule 9 (1) of the said Judgment are for the benefit of the secured creditors as well as borrower and same can be lawfully waived by the parties. It is submitted that even if the provision is mandatory, it can always be waived by the parties in whose favour such provision has been made. It is submitted that the Petitioner Bank has waived its right to enforce the forfeiting earnest money deposit, Respondent No.1 cannot raise any objection in respect of such waiver on the part of the Petitioner Bank.

71. Insofar as issue raised by Respondent No.1 Authority that the auction purchasers had constructive notice of the claims made by Respondent No.1 Authority over the writ property is concerned, the learned counsel for the auction purchasers submitted that Respondent No.1 Authority has not produced any evidence to show that the Flat No.182 was attached at any point of time. Respondent No.1 Authority did not claim any lien in respect of the said Flat No.182 before the society. He submitted that no Special Leave Petition has been filed by the State Government against the judgment delivered by the Full Bench of this Court in case of Jalgaon Janta Sahakari Bank Ltd. & Anr. (supra.)

72. Learned AGP for Respondent No.3 submitted that the Society had communicated the claim of the Sales Tax Department to the Auction Purchasers and Petitioner Bank and thus both of them had notice of the prior claim of Respondent No.1 Authority against the dealer in respect of the said property. Reasons and Conclusions:

73. The question that fell for consideration of this Court is to whether the Petitioner Bank having registered mortgage of the secured asset with Central Registry of Securitization Asset Reconstruction and Security Interest of India (CERSAI) will have priority to make its claim over the claims/charge of the Sales Tax Department arising out of the dues under the Maharashtra Value Added Tax Act, 2002 (MVAT) against the borrower to enforce the mortgaged writ property in favour of the Petitioner and more particularly, when the Sales Tax Deparatment had not registered its claim with CERSAI.

74. We have heard learned counsel for the parties in both the Petitions and also the Respondents at length and have considered their rival submissions in the later part of the judgment.

75. Some of the admitted facts are as under; The borrowers and/or guarantors (Original Respondent Nos.[2] to 11) had availed various credit facilities from the Petitioner Bank since

2004. Respondent No.4 borrower/dealer had created equitable mortgage on the writ property being residential Flat No. 182, 18th Floor, along with two open parking spaces at Abhilasha Premises Cooperative Housing Society Ltd., Jolly Maker Apartment No.2, Opposite World Trade Centre 94, Cuffe Parade, Mumbai – 400 005 in favour of the Petitioner Bank. The said mortgage was extended to secure extended / revised / renewed credit limits granted to Respondent Nos. 2 to 11 by the Petitioner Bank. It is a common ground that Respondent No.1 Authority did not register the claim/charge of any nature whatsoever with the said CERSAI at any point of time.

76. It is also not in dispute that the Petitioner Bank had invoked the provisions of section 13(2) of the SARFAESI Act and had called upon the Original Respondent Nos. 2 to 11 to pay substantial amount. Since there was default on the part of the borrowers and guarantors, the Petitioner Bank proceeded under Section 13(4) of the SARFAESI Act. On 21st March, 2012, the Petitioner took symbolic possession of the secured asset. The Chief Metropolitan Magistrate passed an order under Section 14 of the SARFAESI Act on 23rd January, 2013, on the application filed by the Petitioner Bank for taking physical possession of the secured asset.

77. It is placed on record by the Petitioner Bank as well as the auction purchasers that the said property was put to an e-auction by notice dated 19th September,2019. Respondent No.1 Authority did not raise any objection in pursuance of the said notice dated 19th September, 2019 issued by the Petitioner Bank in conducting E-auction of the writ property which was a secured asset in favour of the Petitioner Bank. The Auction Purchasers participated in the said eauction on 10th March, 2022 and were declared as highest bidders.

78. Auction Purchasers also paid 25% EMD of Rs.1,88,75,000/- to the Petitioner Bank and requested for grant of extension of time until 30 April, 2022 for payment of balance 75% of the bid amount, which was allowed by the Petitioner Bank. On 22nd April, 2022, Respondent No.1 Authority passed an order of attachment, attaching the immoveable properties which are the secured asset of the Petitioner Bank including the writ property. As per the said impugned order, Respondent No.3 as a proprietor of M/s. TUFF Enterprises had committed default in payment of Rs.4,62,27,317/towards Sales Tax Dues. Respondent No.1 informed the Petitioner Bank vide letter dated 22nd April, 2022, and conveyed the said impugned order to the Society on 4th May, 2022.

79. Under Section 32(5) of the MVAT Act, 2002, it is provided that any tax, penalty, interest, fine or sum forfeited, which remains unpaid after the service of notice under sub-section (4), or any instalment not duly paid, or any amount due or payable under this Act, shall be recoverable as an arrears of land revenue.

80. Under Section 37 of the MVAT Act, it is provided that Liability under this Act to be the first charge- “Notwithstanding anything contained in any contract to the contrary, but subject to any provision regarding creation of first charge in any Central Act for the time being in force, any amount of tax, penalty, interest, sum forfeited, fine or any other sum payable by a dealer or any other person under this Act, shall be the first charge on the property of the dealer or, as the case may be, person.”

81. Section 37(2) provides that the first charge as mentioned in sub-section (1) shall be deemed to have been created on the expiry of the period specified under sub-section (4) of Section 32 for the payment of tax, penalty, interest, sum forfeited, fine or any other amount.

82. In the Affidavit in Reply filed by Respondent No.1 Authority, it is admitted that the advances given by the Petitioner Bank to Respondent Nos. 2 to 11 were between 2004-2009. The possession of the flat No.182 was taken in 2011 and property was sought to be sold in

2022.

83. In the Additional Affidavit filed by the Petitioner Bank, the Petitioner Bank has brought on record that the Petitioner Bank has registered mortgage of the secured asset with CERSAI on 30th March, 2012 and had completed the procedure of registation of security interest with CERSAI on 30th March, 2012. A copy of the search report is anenxed at Exhibit ‘A’ to the said Additional Affidavit of the Petitioner Bank, notarized on 4th November, 2022. The registration of the mortgage by the Petitioner Bank with CERSAI is thus admittedly much before warrant of attachment levied by Respondent No.1 Authority on the writ property. In the Affidavit in Reply dated 6 January, 2023 filed by Respondent No.1 Authority, the alleged lacuna has not been disputed by Respondent No.1 Authority

84. Under Section 26-A of the SARFAESI Act, which provides that – Rectification by Central Government in matters of registration, modification and satisfaction, reads thus:- (1) The Central Government, on being satisfied- (a) that the omission to file with the Registrar the particulars of any transaction of securitisation, asset reconstruction or security interest or modification or satisfaction of such transaction or; the omissino or mis-statement of any particular with respect to any such transaction or modification or with respect to any satisfaction or other entry made in pursuance of section 23 or section 24 or section 25 of the principal Act was accidental or due to inadvertence or some other sufficient cause or it is not of a nature to prejudice the position of creditors; or (b) that on other grounds, it is just and equitable to grant relief, may, on the application of a secured creditor or asset reconstruction company or any other person interested on such terms and conditions as it may seem to the Central Government just and expedient, direct that the time for filing of the particulars of the transaction for registration or modification or satisfaction shall be extended or, as the case may require, the omission or mis-statement shall be rectified. (2) Where the Central Government extends the time for the registration of transaction of security interest or securitisation or asset reconstruction or modification or satisfaction thereof, the order shall not prejudice any rights acquired in respect of the property concerned or financial asset before the transaction is actually registered.

85. The issue as to who will have priorty in view of Section 26E of SARFAESI Act was referred to the Full Bench of this Court in case of Jalgaon Janta Sahakari Bank Ltd. & Anr. (supra.). The Full Bench of this Court considered the following questions:- (a) Having regard to the statutory provisions under consideration, does a secured creditor (as defined in the SARFAESI Act and the RDDB Act) have a prior right over the relevant department of the Government [under the BST Act/ MVAT Act/ MGST Act] to appropriate the amount realized by the sale of a secured asset? (b) Whether, despite section 26E in the SARFAESI Act or section 31B of the RDDB Act being attracted in a given case, dues accruing to a department of the Government ought to be repaid first by reason of ‘first charge’ created over any property by operation of law (viz. The legislation in force in Maharashtra) giving such dues precedence over the dues of a secured creditor?

(c) Are the provisions, inter alia, according ‘priority’ in payment of dues to a secured creditor for enforcing its security interest under the provisions of the SARFAESI Act prospective?

(d) Whether section 31B of the RDDB Act can be pressed into service for overcoming the disability that visits a secured creditor in enforcing its security interest under the SARFAESI Act upon such creditor’s failure to register the security interest in terms of the amendments introduced in the SARFAESI Act? (e) Whether the priority of interest contemplated by section 26E of the SARFAESI Act could be claimed by a secured creditor without registration of the security interest with the Central Registry? Depending on the answer to this question, whether correct proposition of law has been laid down (extracted infra) in paragraph 21 of the Division Bench decision reported in 2020 (2) Bom. C.R. 243 (OS) [ASREC (India) Limited vs. State of Maharashtra and Ors.] and in paragraph 35 of the Division Bench decision, reported in 2021 (2) Mh. LJ. 721 State Bank of India vs. the State of Maharashtra and Ors. (f) When, and if at all, can it be said that the statutory first charge under the State legislation, viz. the BST Act, the MVAT Act and the MGST Act, as the case may be, stands displaced having regard to introduction of Chapter IV-A in the SARFAESI Act from 24th January,, 2020? (g) Whether an auction purchaser of a secured asset would be liable to pay the dues of the department in order to obtain a clear and marketable title to the property having purchased the same on “as is where is and whatever there is basis”?

86. The Full Bench considered Section 26-C of the SARFAESI Act and held that the proviso to Section 26-C also declares that a secured creditor, who has registered the security interest or other creditor who has registered the attachment order in its favour, shall have priority of claims over subsequent security interest created over the property in question, any transfer by way of sale, lease, assignment or licence of such property or attachment order subsequent to such registration.

87. This Court noted that since the equitable mortgage could be created without registration, the transaction between the lender and the borrower largely remained secret. There was no way anyone else could get an inkling thereof, until the provisions of CERSAI registration were enacted. This Court held that to curb such problems and other undesirable consequences, the Parliament designed Chapter IV-A in such a manner to include provisions which, on the one hand, would disable any secured creditor to exercise the right of enforcing security interest under Chapter III of the SARFAESI Act without the CERSAI registration (section 26D) and, on the other, enable the secured creditor, if it has the CERSAI registration, to claim priority over all other debts and all revenues, taxes, etc.

88. It is held that Section 26E, also beginning with a nonobstante clause, is unambiguous in terms of language, effect, scope and import. A ‘priority’ in payment over all other dues is accorded to a secured creditor in enforcement of the security interest, if it has a CERSAI registration, except in cases where proceedings are pending under the provisions of the Insolvency and Bankruptcy Code, 2016. This Court held that such registration would constitute public notice thereof. The Full Bench of this Court has held that the dues of the secured creditor shall have priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority in view of Section 26E of the SARFAESI Act.

89. Full Bench of this Court also considered whether the provisions of a statute, becomes a ‘first charge’ on the property, in view of the plain language of Article 327 of the Constitution, must be held to prevail over a Crown debt, which is an unsecured one. This Court held that the rights of such of the first charge holders accorded by several legislation enacted by the State, having regard to the language in which section 26E is couched, would rank subordinate to the right of the secured creditor as defined in Section 2(1) (zd) subject, of course, to compliance with the other provisions of the statute.

90. This Court held that Section 26E of the SARFAESI Act is a subsequent legislation, as it was notified on 24th January, 2020. Subject to compliance of the terms of Chapter IV-A, Section 26E of the SARFAESI Act would, thus, override any provision in the MGST Act and the BST Act in case of a conflict with the SARFAESI Act. This Court held that Section 26D which also refers with a non-obstante clause, prohibits a secured creditor from exercising the rights for enforcement of security interest conferred by Chapter III, unless the secured interest created in its favour by the borrower has been registered with the CERSAI.

91. It has further held that not only therefore registration with the CERSAI has been made a mandatory pre-condition for invocation of the provisions contained in Chapter III of the SARFAESI Act, the provisions relating to debts that are due to any secured creditor being payable to such creditor in priority over all other debs and revenue, taxes etc. is available to be invoked only after the registration of security interest. It leads to the irresistable and inevitable conclusion that unless the security interest is registered, neither can the borrower seek enforcement invoking the provisions of Chapter III of the SARFAESI Act nor does the question of priority in payment would arise without such registration.

92. Insofar as the judgment of the Division Bench of this Court at Nagpur Bench in case of Medineutrina Pvt. Ltd. (Company)(supra) relied upon by Mr. Sonpal, learned special counsel for Respondent No.1 Authority in Writ Petition (L) No.2048[4] of 2022 and for Respondent Nos. 3 and 4 in Writ Petition (L) No.21538 of 2022, is concerned, the Respondent No.1 provides for guidelines as to what steps shall be taken by the secured creditors under the SARFAESI Act to ensure that the property over as a secured interest is free from any encumbrances whatsoever at the time it is so offered initially, to avail financial credit by the owners.

93. The Special Leave Petition filed against the said judgment by the Petitioner Medineutrina Pvt. Ltd. (Company)(supra) in the said writ petition came to be dismissed summarily. The Full Bench of this Court has dealt with the said judgment of the Division Bench in the case of Medineutrina Pvt. Ltd. (Company) (supra). The Full Bench of this Court has taken a contrary view and thus, the principles laid down by the Full Bench of this Court would be binding upon this Court and not the judgment of the Division Bench. The reliance placed by the learned counsel for Respondent No.1 Authority on the judgment of the Division Bench of this Court in case of Medineutrina Pvt. Ltd. (Company) [supra] is misplaced.

94. Mr.Sonpal, learned Special Counsel for Respondent No.1 Authorty could not dispute that the equitable mortgage in favour of the Petitioner Bank by the Original Respondent No.4 was registered with CERSAI in the year 2012 itself. In our view, the registration of the mortgage which was a secured asset in favour of the Petitioner Bank to secure the loans and advances given to the original borrowers was a public notice. The reliance placed on the provisions of Section 32, 35 and 37 of the MVAT Act, 2002 by the learned counsel for Respondent No.1 Authority is of no assistance to Respondent No.1 Authority so as to claim priority over the claim of the Petitioner Bank and more particularly when the equitable mortgage in favour of the Petitioner Bank was clearly registered with CERSAI much earlier.

95. In our view, the submissions advanced by the learned Special Counsel for Respondent No.1 Authority is ex-facie, contrary to the plain reading of Section 26E of the Securitization Act which is a Central Act. Even if there is any inconsistency between the Securitization Act and the MVAT Act, in view of Article 254 of the Constitution of India, the provisions of the Securitization Act would prevail over the provisions of the MVAT Act which is a State enactment.

96. Insofar as the order of Supreme Court in case of Kotak Mahindra Bank Limited Vs. District Industries Centre (D.I.C.) and Ors. relied by Mr. Sonpal, learned Special Counsel for Respondent No.1 Authority is concerned, the said Civil Appeal was arising out of different orders passed by the High Court. The Supreme Court in the facts of that case, in the said order opined that the findings recorded by the High Court in paragraphs 26 and 27 of the judgment impugned in the said Civil Appeal were not positive findings of fact in favour of the Petitioner that the Petitioner had no constructive notice as such. The Supreme Court in the said order did not decide any other issues as are raised by the parties in these two petitions. The said order passed by the Kotak Mahindra Bank Limited (supra) thus, would not advance the case of Respondent No.1.

97. The Respondent No.1 Authority has raised an issue that in the advertisement issued by the Petitioner Bank, the advertisement itself had made it clear that the auction sale shall be on “as is where is, as is what is, whatever there is basis” and thus the auction purchasers are liable to pay all the statutory dues/attendant charges/ other dues including registration charges, stamp duty, taxes, statutory liabilities, arrears of property tax, electricity dues etc. Such clauses in the advertisement would not confer any priority of the claim of taxes in favour of Respondent No.1 contrary to Section 26E of the SARFAESI Act. Be that as it may, the issue of similar clauses have been already construed by the Full Bench of this Court in case of Jalgaon Janta Sahakari Bank Ltd. & Anr. (supra.).

98. In paragraphs 188 to 192 of the said judgment, this Court held that the non-registration of the claim and/or attachment order by the Sales Tax Authority under Section 26B(4) of the SARFAESI Act, can only be at the peril of the department. Mere recording of the purported charge in the record of right of the secured asset, in the absence of the the registration with CERSAI cannot be to the detriment of the auction purchaser, though the auction sale was on “as is where is and as is what is basis”.

99. The auction purchaser have participated in the e-auction conducted by the Petitioner Bank who had priority over the secured asset in view of registration of the equitable mortgage under Section 26E of the Securitization Act with CERSAI. In our view, the Petitioner Bank is not liable to take cognizance of the claim of Respondent No.1 over the secured asset in view of the Petitioner bank having priority over the secured asset and thus, is not liable to pay any taxes or other liabilities out of sale proceeds of the secured asset to the Respondent No.1. The Auction Purchasers’ claim their rights from the Bank having priority over the secured asset which was not liable to pay any taxes to the Respondent No.1 Authority. The principles laid down by the Full Bench on this aspect clearly applies to the facts of the present case. We are unable to accept the submissions made by Mr. Sonpal, Learned Special Counsel for Respondent No.1.

100. The Full Bench of this Court in the judgment of Jalgaon Janta Sahakari Bank Ltd. & Anr. (supra.) has already dealt with similar advertisement and has rejected similar contention of the authority.

101. The Petitioner Bank as well as the auction purchasers have produced on record the correspondence exchanged between the Petitioner Bank, auction purchasers, Society and also between Respondent No.1 Authority. The society has filed an Affidavit in Reply in the Writ Petition (L) No. 21538 of 2022. It is clearly stated in the Affidavit in Reply filed by the society that the Sales Tax Officer vide letter dated 28 July, 2016, had informed the Respondent No.2 about its intention to recover the Sales Tax dues from Mr. Jitendra Shankarlal Jain.

102. It was stated that as the said Jitendra Shankarlal Jain is the owner of the said Flat No. 181, Society was directed not to allow the said Jitendra Shankarlal Jain to sell or transfer the said Flat No.181 without the permission of the Sales Tax Officer’s office. It is further stated in the Affidavit in Reply filed by the Society that the Petitioner Bank had addressed a letter to the Society on 8 February, 2020, inter alia, informing that they were in process of selling the said flat No. 182 under the provisions of the SARFAESI Act,2002. The Respondent No.1 Authority also had informed the Society that the auction purchasers were not declared as successful bidders of the Flat No. 182 by letter dated 25 March, 2022 under the provisons of the SARFAESI Act, the society was requested to provide its pending dues, if any in relation to the Flat No. 182.

103. Learned counsel for the Society urged that as per Section 26E of the SARFAESI Act, 2002, Respondent No.1 Authority had priority over all other debts and all revenues, taxes, cesses, and other rates payable to the Central Government or the State Government or the local authorities. The Society informed the Petitioner Bank that there was a claim of Sales Tax Department in respect of Flat No. 181 vide letter dated 28 March, 2022.

104. The learned counsel for the society during the course of his argument vehemently urged that there is no attachment levied by the Respondent No.1 Authority in respect of the Flat No. 182 which is the subject matter of the present Petition. However, out of abundant caution and in view of the fact that the said Mr. Shankarlal Jain was a common co-owner of the said Flat No.181 and the said Flat No.182, and the said Flat No. 181 and 182 are joint, having a common entrance and joint use even prior to the passing of the impugned order, Respondent No.2 Society had informed to the Petitioner Bank about the claims of the Sales Tax Department. Learned counsel submitted that the Society was ready to issue No Objection Certificate for transfer of the Flat No. 182 in favour of auction purchasers subject to the satisfaction of its dues in respect of the said Flat No.182 and the raising/discharge of the impugned order dated 22 April, 2022 and issuance of NOC by the Sales Tax Department.

105. The Auction Purchasers also invited our attention to the letter dated 28 March, 2022 from the Auction Purchasers to the Petitioner Bank stating that during inspection, the auction purchaser had observed notices pasted on the door of the said flat No.182 stating over that the dues to be paid to the society. The society informed the Petitioner Bank regarding the dues of the society recoverable in respect of the said flat to the tune of Rs.22,00,000/- and about Rs. 50,000/towards electricity dues. The Auction purchasers considered the said amount being reasonable and decided to bid and purchase the said property in auction.

106. Mr. Sonpal, learned Special Counsel for Respondent No.1 Authority could not point out any order of attachment on the writ property i.e. Flat No. 182 even during the course of argument. The only contention raised by the learned special counsel was that Flat Nos. 181 and 182 both belong to the same owner having a common entrance of both the flats.

107. In our view, the stand taken across the bar that there is a common entrance in respect of the two flats, the attachment, if any, in respect of the Flat No.181 would also amount to attachment on Flat 182, is misconceived and deserves to be rejected. Insofar as submission of Mr. Sonpal, learned Special Counsel for Respondent No.1 Authority that Rule 9(4) of the Security Interest (Enforcement) Rules 2002 provides with extension of time for payment to the auction purchasers could not be beyond the period of three months and thus the auction purchasers not having paid the balance amount within a period of three months on or before issuance of confirmation stood canceled is concerned, there is no merit in the submision made by the learned Special Counsel for Respondent No.1.

108. Supreme Court in the case of General Manager, Sri Siddeshwara Cooperative Bank Limited (supra) has interpreted Rule 9(4) of the Securitization Interest (Enforcement) Rules, 2002 and held that, the provisions of Rule 9(1) being for the benefit of the borrower and the provisions contaned in Rule 9(3) and 9(4) being for the benefit of the secured creditor (or for that matter for the benefit of the borrower), the secured creditor and the borrower can lawfully waive their right. These provisions neither expressly nor contextually indicate otherwise. The interpretation by the Supreme Court in the case of General Manager, Sri Siddeshwara Cooperative Bank Limited (supra), clearly applies to the facts of this case. We are respectfully bound by the said principles.

109. Perusal of the correspondence exchanged between the Petitioner Bank and auction purchasers indicates that though at one stage the Petitioner Bank had addressed a letter thereto, forfeiting the earnest money deposit of 25%, the fact remains that in view of the attachment order passed by the Respondent No.1 Authority before expiry of three months, neither the Petitioner Bank could recover the balance amount nor auction purchasers could pay any such amount. The Petitioner Bank accordingly informed the auction purchasers by a letter dated 29 June, 2022 that since the Petitioner Bank had filed this writ petition before this Court to lift the attachment of the Sales Tax Department, the Petitioner Bank seeks direction against the Sales Tax Department to confirm the sale in favour of the auction purchasers and permit the balance 75% amount immediately upon passing of direction of this Court in the said writ petition.

110. We are not inclined to accept the submission of the learned special counsel for the Respondent No.1 Authority that the Petitioner cannot waive their right to forfeit the earnest money deposit and to accept the balance consideration amount subsequently, depending upon the outcome of this petition filed by the Petitioner Bank. In our view, there is no substance in the submission made by the learned Special Counsel for Respondent No.1. If the Petitioner Bank has waived its right to forfeit the Earnest Money Deposit which is permissible in law, Respondent No.1 Authority cannot object to right of Petitioner not to waive.

111. The auction purchasers had never received any actual notice of the lien or constructive notice from the Respondent No.1 Authority in respect of the said writ property and thus is not liable to pay any tax separately towards the tax dues of the dealer of Respondent No.1 Authority.

112. We accordingly pass the following order:

(i) Writ Petition (L) No. 2048[4] of 2022 is made absolute in terms of prayer clause (a).

(ii) The Attachment Order dated 22 April, 2022

(iii) Writ Petition (L) No. 21538/2022 is made absolute in terms of prayer clause (a).

(iv) If any application for NOC is made by the auction purchasers in Writ Petition (L) No. 21538 of 2022, the Society to issue such NOC in favour of such auction purchasers for transfer of Secured Asset in their favour without insisting for payment of the Sales Tax dues payable by the dealer, if any, however, on compliance with all other formalities, expeditiously. It is made clear that Respondent No.1 Authority has right to recover its dues against the dealer from any of their other assets.

(v) Rule is made absolute in both the petitions. No order as to costs.

(vi) Parties to act on an authenticated copy of this order.

(M.M. SATHAYE, J.) ( R.D.DHANUKA, J. ) Judgment dated 24/3/2023 is corrected as per the Praecipe and matter placed on board on 6/4/2023 for speaking to the minutes.

ANIL TIKAM